Den danske finanspakke til bekæmpning af coronakrisen fører til, at Danmark får det største underskud i 25 år, vurderer Nordea. Dermed får Nationalbanken et øget finansieringsbehov på 300 milliarder kr. i de kommende måneder. Og dermed øges den danske offentlige gæld med hele 40 pct.
Uddrag fra Nordea:
Denmark: How to finance the debt deluge
For more than a decade the need for issuance of Danish government debt has been very limited. However, with the coronavirus crisis, the financing requirement has surged. In this note we estimate how the central bank will provide the required funding.
Highest financing requirement in more than 25 years
According to the Danish ministry of finance the government has made initiatives worth a total of around DKK 387bn in order to support the economy during the coronavirus crisis.
Most of the government’s initiatives include guarantees and extension of deadlines for payment of VAT and corporate taxes. However, DKK 86bn has been provided as subsidies that will most likely end up as government expenditures. In addition higher costs for unemployment benefits and lower revenues could cause public deficit to reach DKK 120-170bn, equivalent to 5-7% of GDP according to an estimate from the Ministry of Finance. If correct, that implies the highest government deficit in more than 25 years.
Chart 1: Government defict/surplus
The Danish central bank has opened all taps
According to an estimate from the Danish central bank last week, the government’s initiatives will cause the total financing requirement to reach DKK250bn until July. That is around DKK 200bn more than originally planned. However, this number is most likely higher, as the latest initiatives which were agreed this weekend is most likely not included. Consequently the central bank could face a total financing requirement of more than DKK 300bn over the coming months, equivalent to an increase in gross public debt of around 40%.
Chart 2: Public gross debt
Towards the end of the year the financing requirement will most likely fall again once the temporary liquidity measures expires.
Given the assumption that the total financing requirement until end-August accumulated to a total of DKK 300bn, we have tried to estimate how this could be obtained.
- Withdrawals from the central government’s account (80bn)
By the end of March the government’s deposit at the central bank was DKK 134bn. This was significantly higher compared to previous months mainly due to large government revenues from tax on pension savings. As withdrawals from the deposit are the easiest way to finance the sharp increase in government expenditures, we expect the account to be drained to around DKK 50bn, thereby providing DKK 80bn to government financing.
- Government bonds issued in DKK (50bn)
In mid-March the Danish central bank increased the issuance target for domestic government bonds by DKK 50bn to DKK 125bn. We do not expect this target to be increased further as the risk of an even larger supply has been a major driver of the recent sharp increase in the interest rate spread towards Germany. Year-to-date issuance has been slightly above DKK 34bn. Assuming a linear issuance profile for the rest of the year, this implies funding of around DKK 50bn until the end of August.
- Treasury bills in DKK (40bn)
The Danish central bank has removed the usual target for the outstanding amounts of T-bills. However, as two extra T-bills have been added, the overall size of the programme will most likely be rapidly increased in coming months. With a large degree of uncertainty we expect the sale of T-bills towards end-August to reach around DKK 40bn.
- Commercial papers issued in USD (DKK 120bn)
With an estimated total financing in DKK of DKK 80+50+40=170bn, this leaves DKK 130bn to be obtained through financing in foreign currencies. Currently the central bank has two Commercial Paper programmes each of a size of USD 12bn, equivalent to around DKK 160bn. We expect the central bank to use this facility extensively in coming months as it provides short-term funding from an almost unlimited source.
- Government bonds in foreign currency (DKK 10bn)
Currently, the Danish central bank does not have any outstanding amounts in the EMTN, in which they have the possibility to issue government bonds in foreign currencies. However, to increase flexibility and also support the need for longer term funding, we expect the programme to be reopened in coming months. The expected issuance will most likely be with a maturity of around 3 years and denominated in either EUR or USD.
